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Card issuers’ potential losses from impending debit-interchange legislation could range from as low as $5 billion to more than $10 billion annually, a PaymentsSource analysis based on industry observers’ projections shows.
June 24 -
WASHINGTON — After a marathon final day of debate, the regulatory reform process ended in the early hours of Friday in the same dramatic manner it had been conducted for more than a year: with a near breakdown followed eventually by a miraculous save.
June 24
When final debate on the financial reform bill ended in the early hours of June 25, the new rules surrounding debit card interchange stood unchanged, beyond a few key carve outs announced June 21.
The newly named Dodd-Frank Act returns to the full House and Senate for votes next week, where many observers expect it to pass.
Merchants claimed a victory in the bill’s inclusion of an amendment Sen. Richard Durbin, D-Ill., sponsored, which requires the Federal Reserve for the first time to set “reasonable and proportional” debit card interchange rates. The amendment also bans brand-exclusivity arrangements between card networks and debit card issuers.
The Federal Reserve has nine months after the bill passes to determine the interchange new rates, which would become effective 12 months after the bill’s passage.
Issuers can expect to see cuts in debit card interchange revenue ranging from 25% to 75% of present levels. Institutions with less than $10 billion in assets are exempted from the rule, although credit unions and community banks say they fear market forces will cause their interchange revenues to decline.
Early this week, committee-conference members agreed to a few key changes in Durbin’s amendment. Government entities that distribute benefits through debit cards are exempted from the new interchange rules. And issuers of reloadable debit cards, which are popular among some low-income consumers, are also exempted.
Another provision of the bill allows merchants to refuse credit card transactions under $10.
